Cyril Ramaphosa. REUTERS
Cyril Ramaphosa. REUTERS

SA is cooling its heels in purgatory, waiting for that day in May when it will become clear in what direction the country is heading.

President Cyril Ramaphosa hasn’t yet set a date for the general elections (though it’s likely to be towards the end of May). Experts say there’s a sense that he’s waiting to see what kind of mandate the election provides before making significant policy moves.

It’s a sensible approach, says independent political analyst Nic Borain.

He says Ramaphosa has to make two calculations: first, how strong the ANC is among the people; and second, how strong Ramaphosa is personally within the ANC.

This is easier said than done, given the fact that the shadow of state capture looms so large over the entire party that alliances are seemingly always in flux. But the early signs look promising for Ramaphosa.

Borain says that though poll data is scarce, for now it looks as if the opposition parties are losing support and the ANC is well placed to get more than 50% of the vote.

A snap poll by the SA Institute of Race Relations in early December suggested the ANC’s position had strengthened and, based on voter turnout of 69%, it could get as much as 59% of the vote.

Equally, the DA could get 22% on that same basis, with the EFF coming out with 10%.

A strong turnout for the ANC would give Ramaphosa a solid mandate, strengthening his grip on the ruling party. This is vital, as he won at the December 2017 elective conference by only a razor-thin margin. It left him hamstrung: unable to push through a definitive agenda or make unfettered changes to his cabinet.

"We still don’t have a Ramaphosa-appointed government," says Borain.

Since Ramaphosa became president in February, critics say he has governed cautiously, if not timidly. So, nearly a year later, we still have ministerial deadbeats like Bathabile Dlamini and Nomvula Mokonyane in the cabinet.

Delphine Govender, chief investment officer at Perpetua, says the euphoria that was rife when Ramaphosa won at the ANC’s elective conference has evaporated. "We didn’t just hit the wall, we went right down."

Perhaps Ramaphosa needed to act warily. After all, the fallout from fixing several of the state entities carried the potential to weaken him politically: cutting jobs at Eskom and the SABC was likely to cost him support from within the trade unions.

Borain is not surprised by Ramaphosa’s careful approach, given the economic environment. "In many ways, we are in a similar position to where we were in 1994," he says.

Click to enlarge.
Click to enlarge.

During the eras of Nelson Mandela (1994-1999) and Thabo Mbeki (1999-2008) the government adopted austere, unpopular economic policies such as Growth, Employment & Redistribution (Gear) which, over time, gave it the capacity to roll out the continent’s largest social grant payment programme. The Zuma era dragged SA back to the beginning.

Econometrix chief economist Azar Jammine says many of the same challenges SA faced in 1994, such as high unemployment and a rising deficit, are the same issues it faces today.

While Mbeki was lucky enough to have the economy benefit from the commodity boom (fuelled by seemingly never-ending demand from China), Ramaphosa faces an unsettling global economic outlook.

There are growing concerns that the US economy could take a turn for the worse, while uncertainty about the UK’s exit from the EU and rising fears of a trade war between the US and China means the outlook is anyone’s guess.

At home, SA is in deep trouble. Unemployment is 27% (37% using the wider definition, taking into account discouraged jobseekers), GDP is predicted to grow at only 1.5% over the next few years and state-owned companies are as chaotic as ever.

In early December, when Fitch Ratings affirmed SA’s credit rating, it pointed out that the country’s rating was "weighed down by low growth potential, sizeable government debt and contingent liabilities and the risk of rising social tensions due to extremely high inequality".

On the other side of the coin, SA still has "strong institutions, a favourable government debt structure, deep local capital markets and a healthy banking sector".

But there’s no cloaking the fact that debt at state-owned companies, such as SAA and Eskom, remains an albatross around the country’s neck, sitting at a combined R1.6-trillion. Eskom’s debt is now R419bn, and it has become so dire that it must borrow funds just to pay the interest on that.

To make matters worse, in early December, Eskom embarked on another round of load-shedding — a disaster in terms of the direct impact on productivity, as well as for the indirect impact on business confidence.

It came just after SA rebounded from a technical recession, reporting 2.2% GDP growth in the third quarter.

Economist Mike Schüssler says another recession could be on the cards if the load-shedding persists into January.

"I’m a bit pessimistic about the start of the year," he says.

Schüssler warns that another drought could also push up food prices, which will cause inflation to rise too.

And there may be an increase in electricity tariffs in April.

Govender says companies have been struggling for months. "You could tell the pressure consumers were under, because despite the lack of inflation in retailers, they were refusing to buy more goods."

The one good thing about the dire year, she says, is that it has lowered the base for next year. This means that any rise in demand will look that much better.

Financial adviser Magnus Heystek says the economy has been very fragile for the past five years. "It has been vulnerable to any kind of shock such as load-shedding and Ramaphoria — that’s not going to change."

Amid the despondency back home, Ramaphosa has been on a charm offensive to boost SA’s investment profile. At a conference in October, he spoke of his plans to raise R100bn in foreign investment. But at this point, you sense it’s a drop in the ocean.

The fragility is underscored by the fact that Moody’s may downgrade SA’s sovereign credit rating to "junk" next year, joining Fitch and S&P Global Ratings, which already have it at sub-investment grade.

That would push SA government bonds out of the Citigroup world government bond index, which means investors could ditch as much as R100bn of local assets. This, in turn, would push up the cost of SA’s debt.

And the bad news is that some analysts — including Bank of America Merrill Lynch’s David Hauner — consider a Moody’s downgrade "very likely" right now.

All of which suggests that Ramaphosa needs to pull some extra rabbits out of the hat almost immediately. This is tough since, as Borain puts it, "the easy stuff has been done" to turn the economy around.

So, for example, Ramaphosa has axed Tom Moyane as the commissioner of the SA Revenue Service, to plug the holes in the tax administration system, and announced plans to spend R50bn to add impetus to agriculture‚ tourism‚ manufacturing and township economies.

And, importantly, he has announced plans to speed up the allocation of high-value radio spectrum. Mobile operators have been eagerly anticipating getting access to this radio frequency for years, as it will allow them to transmit over wider areas.

It would be an easy win. Developing countries can grow their economies by as much as 1.3%, if they increase broadband penetration 10%.

And mobile operators gain too, as they can roll out faster broadband services such as 5G.

The plan is for the regulator, the Independent Communications Authority of SA, to auction off batches of radio spectrum for 4G services by April 2019, then allocate spectrum for 5G later in the year, and issue 5G licences by 2020.

Borain says one of the biggest challenges on spectrum is figuring out how to allocate it to boost competition, without entrenching the power of the dominant operators.

Significantly, Ramaphosa has been able to deploy his reputation in business circles effectively. In October, he got SA’s business leaders to commit to investing R290bn.

Jammine says Ramaphosa has done well to get the buy-in from business. "At least he’s listening to business," he says.

But all things considered, these moves are not enough. As Fitch put it in early December, Ramaphosa’s measures "will take time to implement and are not sufficiently far-reaching to raise medium-term potential growth significantly — as a result, potential growth is expected to remain just below 2%."

While that is marginally ahead of population growth of 1.6%, it is certainly not high enough to meaningfully fix the jobs crisis.

While the economy staggers along, social tensions are increasing.

This has manifested itself in a debate on land. The glacial pace of land reform over the past 20 years has created huge political risk, hastening calls for expropriation without compensation and fuelling populist calls by Julius Malema and others.

As Fitch says, the discussion about expropriation "reflects frustration about a lack of progress on reducing inequality".

But Borain doesn’t see Ramaphosa moving quickly to resolve the land debate. While he thinks there’s a chance some legislation, or a constitutional amendment on land expropriation without compensation could be passed early next year, Borain doesn’t see the president making any radical departures from existing policy.

Jammine, for his part, hopes the government considers giving people state-owned land and granting them title deeds for tribal land. This would allow people to use the land as collateral to raise loans.

Then there are the fragile state-owned enterprises, with their immense wage bills, acting as a drag on the wider economy.

The SABC’s wage bill has risen from R1.82bn in 2013 to R2.54bn. It’s a similar story at Eskom, where the average individual wage bill grew from about R300,000 to R770,000. All of this while Eskom’s staff complement shot up from 33,000 to 48,000 employees.

Eskom also has to sort out its debt, which is projected to rise to R600bn over the next three years, as well as get municipalities to start paying the money owed to it. In recent weeks, Eskom chair Jabu Mabuza proposed that the government take R100bn of the utility’s debt onto its own balance sheet. This would reduce Eskom’s interest repayments (which are immense, at R250bn over three years) but could add two percentage points to SA’s total debt-to-GDP ratio of 70%.

Despite Ramaphosa’s long to-do list, Borain says he has done well in auditing the corruption of the Zuma era, through innovations like Raymond Zondo’s state capture commission. In addition, the Public Audit Amendment Bill was passed, giving the auditor-general more powers, and Shamila Batohi was appointed as national director of public prosecutions.

Batohi has keen ideas about what she wants to do. During her interview for the job, she said she wanted to create a directorate specifically to deal with corruption — including representatives from civil society, the private sector and the auditor-general.

But Borain says it’s only the start. "The damage is deep. The resources for fixing it are poor," he says.